Last updated: January 11, 2012 7:39 pm

Intel processor turns the heat up on Arm

Competition worries led Arm Holdings lower on Wednesday as the London market retreated.

The chipmaker was under pressure after Intel said that Motorola and Lenovo would all start shipping based around its low-power processor later this year. Intel also hinted that the chip would be able to run Arm applications.

“This is the first time Intel has design wins with credible mobile makers,” said Société Générale. “With even more competitive Intel processors to come, this news puts the preservation of Arm’s 90 per cent-plus market share in clear doubt and risks increasing price pressures, which we think the market has been denying.”

Motorola, soon to be bought by Google, also said it had entered a strategic partnership with Intel. The collaboration may help Intel establish a foothold for Google’s market-leading Android platform, said JPMorgan Cazenove.

“Intel has a major credible partner in smartphones and tablets meaning that the consistent positive news flow that has helped Arm is likely ending,” said the broker. “If Intel is able to continue to build important alliances such as this one, we believe it is unlikely that Arm can continue to trade at 45 times adjusted [2012 earnings].”

Arm ended 2.6 per cent lower at 588½p.

Oil stocks weighed on the wider market, pulling the FTSE 100 lower by 0.5 per cent or 25.88 points to 5,670.82. Royal Dutch Shell , alone accounted for 18 points of the decline, with its B shares losing 3 per cent to £24.14.

SSE was down 2.8 per cent to £12.64 and Centrica lost 1.3 per cent to 283¾p after competitor EDF Energy said it would be cutting retail gas prices by 5 per cent from February.

“This will put pressure on both Centrica and SSE to respond given that post the price cut EDF Energy will be around 7 per cent cheaper than both suppliers for dual fuel,” said JPMorgan. “We believe that a 5 per cent price reduction would make it difficult for SSE to meet its full-year guidance of 2-5 per cent growth in profit before tax.”

Man Group lost 3.5 per cent to 104½p, taking its plunge over the past seven months to 56 per cent. The hedge fund should use a trading update due next week to cut its annual dividend by around 50 per cent, Singer Capital Markets said.

A downgrade from Credit Suisse on valuation grounds sent Aggreko down by 3.3 per cent to £20.52.

Unilever lost 3.1 per cent to £20.84 after Merrill Lynch downgraded to “underperform”. It worried that most analysts were yet to adjust for management’s guidance that recurring restructuring costs would be included in core earnings.

Unilever shares were at a 10 per cent premium to the European consumer staples sector, versus a historic discount of 10 per cent, Merrill said, adding: “this premium rating is unsustainable in light of slowing organic sales growth, muted margin uplift and consensus earnings per share downgrades.”

Reckitt Benckiser added 0.9 per cent to £33.84 after a Morgan Stanley upgrade.

ITV rose 2.7 per cent to 73¾p amid a lacklustre reheat of bid gossip. Panmure Gordon kept “buy” advice on ITV, arguing that the stock was “badly mispriced in all but the bleakest macro scenario.”

Recruiter Michael Page rallied 6.6 per cent to 368p after its year-end trading update proved no worse than flagged up by its December profit warning. Moneysupermarket.com ’s update also reassured, lifting the stock by 6.8 per cent to 109¼p.

Fenner , the conveyor belt maker, gained 6.7 per cent to 438p after it said demand remained strong and the order intake has been in line with expectations.

Rentokil Initial jumped 5.7 per cent to 70½p after Goldman Sachs added the stock to its “conviction buy” list with a 100p target price. If City Link, the group’s mail delivery business, fails to reach profitability this year it could become a candidate for a strategic review, it said.

N Brown lost 5 per cent to 229¾p after the catalogue retailer’s Christmas trading update showed margins weakening. Other retail trading updates provided few surprises, with J Sainsbury down 1.2 per cent to 302p and Supergroup off 0.7 per cent to 547p.

Among small caps, Game Group lost 9 per cent to 3½p in response to Tuesday’s warning that it was likely to breach two debt covenants. JPMorgan, cutting its share price target to 2p, expected the retailer to cancel its final dividend.

The chipmaker was under pressure after Intel said that Motorola and Lenovo would all start shipping based around its low-power processor later this year. Intel also hinted that the chip would be able to run Arm applications.

“This is the first time Intel has design wins with credible mobile makers,” said Société Générale. “With even more competitive Intel processors to come, this news puts the preservation of Arm’s 90 per cent-plus market share in clear doubt and risks increasing price pressures, which we think the market has been denying.”

Motorola, soon to be bought by Google, also said it had entered a strategic partnership with Intel. The collaboration may help Intel establish a foothold for Google’s market-leading Android platform, said JPMorgan Cazenove.

“Intel has a major credible partner in smartphones and tablets meaning that the consistent positive news flow that has helped Arm is likely ending,” said the broker. “If Intel is able to continue to build important alliances such as this one, we believe it is unlikely that Arm can continue to trade at 45 times adjusted [2012 earnings].”

Arm ended 2.6 per cent lower at 588½p.

Oil stocks weighed on the wider market, pulling the FTSE 100 lower by 0.5 per cent or 25.88 points to 5,670.82. Royal Dutch Shell , alone accounted for 18 points of the decline, with its B shares losing 3 per cent to £24.14.

SSE was down 2.8 per cent to £12.64 and Centrica lost 1.3 per cent to 283¾p after competitor EDF Energy said it would be cutting retail gas prices by 5 per cent from February.

“This will put pressure on both Centrica and SSE to respond given that post the price cut EDF Energy will be around 7 per cent cheaper than both suppliers for dual fuel,” said JPMorgan. “We believe that a 5 per cent price reduction would make it difficult for SSE to meet its full-year guidance of 2-5 per cent growth in profit before tax.”

Man Group lost 3.5 per cent to 104½p, taking its plunge over the past seven months to 56 per cent. The hedge fund should use a trading update due next week to cut its annual dividend by around 50 per cent, Singer Capital Markets said.

A downgrade from Credit Suisse on valuation grounds sent Aggreko down by 3.3 per cent to £20.52.

Unilever lost 3.1 per cent to £20.84 after Merrill Lynch downgraded to “underperform”. It worried that most analysts were yet to adjust for management’s guidance that recurring restructuring costs would be included in core earnings.

Unilever shares were at a 10 per cent premium to the European consumer staples sector, versus a historic discount of 10 per cent, Merrill said, adding: “this premium rating is unsustainable in light of slowing organic sales growth, muted margin uplift and consensus earnings per share downgrades.”

Reckitt Benckiser added 0.9 per cent to £33.84 after a Morgan Stanley upgrade.

ITV rose 2.7 per cent to 73¾p amid a lacklustre reheat of bid gossip. Panmure Gordon kept “buy” advice on ITV, arguing that the stock was “badly mispriced in all but the bleakest macro scenario.”

Recruiter Michael Page rallied 6.6 per cent to 368p after its year-end trading update proved no worse than flagged up by its December profit warning. Moneysupermarket.com ’s update also reassured, lifting the stock by 6.8 per cent to 109¼p.

Fenner , the conveyor belt maker, gained 6.7 per cent to 438p after it said demand remained strong and the order intake has been in line with expectations.

Rentokil Initial jumped 5.7 per cent to 70½p after Goldman Sachs added the stock to its “conviction buy” list with a 100p target price. If City Link, the group’s mail delivery business, fails to reach profitability this year it could become a candidate for a strategic review, it said.

N Brown lost 5 per cent to 229¾p after the catalogue retailer’s Christmas trading update showed margins weakening. Other retail trading updates provided few surprises, with J Sainsbury down 1.2 per cent to 302p and Supergroup off 0.7 per cent to 547p.

Among small caps, Game Group lost 9 per cent to 3½p in response to Tuesday’s warning that it was likely to breach two debt covenants. JPMorgan, cutting its share price target to 2p, expected the retailer to cancel its final dividend.

Vague speculation about takeover interest lifted IQE , the chip wafer maker, by 21.3 per cent to 22¾p.

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